my view is that $bam for $bpy is yet another $bam related party deal designed to bury some ugliness (like the sono deal) - this is a long one

@DonutShorts
@danjmcnamara

when $bpy bought $ggp, they renamed $ggp brookfield property reit, and gave it the $bpr, and then $bpyu ticker. the mall holdco is a sub of $bpy

despite just owning the equity of the mall sub, $bpyu holders are entitled to a $bpy-equivalent divvy and can convert their shares to $bpy units on a one for one basis, making $bpyu economically equivalent to $bpy

the mall sub has ~$6B of topco debt in addition to all the property level debt (essentially all the malls have a mortgage). this topco debt, which is recourse to $bpyu, but not $bpy, is structurally subordinate to the mortgages

the practical implication is that in order for the mall sub to be solvent, the residual equity value in excess of the property level debt has to exceed $6B

based on comparable mall appraisals, it’s very likely that many of the malls no longer have any equity under them and, under that scenario, there prob isn’t > $6B equity value to make the topco lenders whole nor preserve solvency

so let’s say the mall sub, $bpyu, ran into a solvency issue - the conversion function allows $bpyu holders to convert to $bpy and escaping a lengthy and probably highly detrimental restructuring

what we’re seeing today is $bam NOT offering to purchase any $bpyu shares, but in fact $bam is saying it expects $bpyu holders who convert to $bpy to receive the same consideration as $bpy holders

$bam isn’t buying the part of $bpyu that $bpy doesn’t own, it’s telling those holders the only way they get out of $bpyu is by converting to $bpy

all that said, now imagine that sub goes thru a very public, ugly credit event. $bpy stock would crater, and $bam would have egg on its face

by buying the parent ($bpy) and not increasing its exposure to $bpyu, $bam bails out its retail shareholders and gives itself the flexibility to walk away from the mall sub away from the public scrutiny

it’s my view that the mall sub is insolvent, and $bam knows this, so they are stepping in w their enormous war chest and history of related party deals to bury this

in the meantime, some $bam private fund is going to take the long term risk on malls, and i’m sure $bam will find some way to replace the public entity fee stream it’s trading away

as a side note, imagine how furious investors who tendered/sold at the $12 levels in late summer must be (end)